United Airlines had security drag a passenger off an airplane on Sunday. The CEO of United did not apologize until just a little while ago. Story and video here.
It’s apparent that the previous statement (discussion here) which did not include an apology was not having the desired effect.
Source: Reuters, accessed noon CST 11 April 2017.
Time to buy! United is not going anywhere. There won’t be any Airline Passengers Bill of Rights. The consolidation in the industry has left few choices.
Now, about those useless vouchers…
Perhaps this is why nobody one the plane took them up on their offer? Word is out. The vouchers are worth about zero.
There’s two sides to every story. The video doesn’t capture the whole incident. Four people were picked randomly to leave the flight. A couple left without incident. A female employee asked the man to leave, he refused, and she called security. What was said between the man and security and how long were they talking? Why did security feel they had to forcibly remove him, kicking and screaming? Why did the man run back and get on the plane again after he was removed? Seems like odd behavior. The flight was delayed three hours, because of the incident (everyone suffered). Of course, United handled the situation very poorly and the man shouldn’t have been forcibly removed. I find it interesting, many people believe it’s racist, just because the man is Asian.
Anyway, a lot more people know the man has a criminal record:
“Dr. David Dao was charged with 98 felony drug counts for illegally prescribing and trafficking painkillers in 2005.
Prosecutors claimed he fraudulently filled prescriptions for hydrocodone, Oxycontin and Percocet.
He was convicted on six felony counts of obtaining drugs by fraud and deceit, and in 2006 was given five years probation.
TMZ reports Dao was also convicted of writing prescriptions and checks to a patient in exchange for sex.
He reportedly surrendered his license to practice medicine in Kentucky in 2005. That suspension was lifted in 2015, allowing him to practice medicine again. TMZ reports he can only practice internal medicine in an outpatient facility one day per week.”
his past record has absolutely no bearing on the current story. there appear to be ethics complaints filed against the journalist who reported this as a result. it is actually quite sorry for somebody to repeat this story.
focus instead on the very poor management decisions of the airline. reasonable management practice is to bump a passenger before boarding. very poor management practice is to bump a passenger after boarding. the rules permit it, but that is a technicality. united displayed extremely poor management and decision making skills. united management appears to be out of touch with their customers. and they appear to be less than competent in moving their employees to needed locations.
The facts are out. Why close the barn door after the livestock left? United may need a defense attorney.
More journalists should report the facts rather create narratives only supported by speculation.
the man’s past history has nothing to do with the current situation. hence the introduction of that information is doing nothing but framing a narrative. and i agree, that should not be done in this particular case.
Of course, a history abusing drugs is totally irrelevant with bizarre behavior.
Irrelevant.
As several people noted, the passenger’s history is irrelevant. Try a thought experiment. Assume that the passenger had a pristine medical practice history, with no complaints, how would that change the facts of this case?
Funny how so-called free market capitalists hate free markets. The market method to sort this out is to freely negotiate a price for the seat. Obviously, the airline placed a large value on the seat. If its crew couldn’t get to their location it could cost the airline tens of thousands of dollars for a cancelled flight.
Instead of offering the real value, they offered a measly $800 and became upset when no passengers took the offer. This isn’t surprising. For example, the doctor could easily lose more than $800 if he did not reach his destination for 24 hours. So the airline’s offer was not a good faith offer. The inadequate offer did not provide real value to any passenger.
There is a witness that said that one passenger offered to give up their seat for $1600. The airline supervisor just laughed and then called the police to take the seat by force. So that’s modern capitalism. If you don’t like the market price, you just get the police to take what you want through violence. Police in service of capitalism.
It’s common to get bumped off a flight:
https://www.google.com/amp/www.dailymail.co.uk/travel/travel_news/article-4401096/amp/Experts-reveal-airlines-overbook-seats.html
Involuntary? Not really.
http://m.motherjones.com/kevin-drum/2017/04/which-airline-kicks-most-passengers
PeakTrader
It seems that you are deflecting the problem that United created when they offered $800 to get off the flight because four employees showed up after everyone was boarded by deflecting the story away to his drug history. It is the same thing I see when you make comments on this site with a deflection when the story does not fit into your perceived narrative.
The fact remains: After everyone was boarded, four employees showed up saying they need to get to work in KY. So the supervisor offered $800 for anyone to give their seat. Only three took under protest. After failing to get the fourth, they decided to use their power to volunteer one person. They could have picked someone else but they chose not to. After a short standoff, they decided to call the police to eject him forcibly which is what everyone saw on the video.
As a result, many passengers where the crews sat gave them a whiff of the discontent.
The CEO made the matter worse by defending the employees despite the fact he got an award for outstanding customer service. It was until the stock started sliding is when he had to retract his defense of the employees to issue an apology to the paying customer.
As a result of this incident:
United and other airlines now empowered line staff and supervisor to offer up to specified amount for anyone being bumped if there was an over booking.
United now requires employees to show up one hour before the flight. This is something that should have been in place before this fiasco came about.
In short, that is one of the worse customer service I’ve ever seen in an airline business.
PeakTrader goes the route of smearing the victim as justification for violently attacking him.
Well then, it’s only fair to point out that the current CEO Oscar Munoz acquired his job because his predecessor had to resign because of bribery associated with the New York and New Jersey Port Authority and Chris Christie.
A major corporation with a history of criminal activity behaves egregiously. Who would have guessed?
The United employees and passengers were also victims of the policy. Unfortunately, a high powered attorney won’t be representing them to get millions of dollars of damages out of United. I wouldn’t feel too sorry for your one victim.
How did we get to the point that it seems as if every CEO in the country is a sociopath?
The underlying issue is that the flight crew thought dragging a passenger out of a plane in the internet age was a good idea.
This speaks volumes to corporate culture. Had the flight crew been empowered to run an auction, then the seats could have been obtained at the market price–which would be the proper procedure in every respect.
That the crew did not do this implies that 1) they were not empowered to do so, and 2) that they were more worried about the failure to eject passengers in the eyes of management than any bad publicity which might follow dragging a Chinese doctor off the plane. It is a damning indictment of UA’s management and sufficient cause to call for the CEO’s resignation.
The German Airline Lufthansa (Star Alliance partner if United Airlines since decades) made it clear that overbooking would be dealt with before boarding
This “Dr.” Dao refused orders from the Police and was therefore a clear and present danger to the airplane and the passengers.
He deserves jail time.
I will fly again with United any minute
Although this is an economics blog (supposedly), it’s interesting that no one has considered the economics. Whenever we see a person, a company, or indeed any agent behaving apparently irrationally, we are tempted to jump to the conclusion that they are indeed irrational if not malicious. But an economist does not assume that agents are irrational or malicious-as a general rule-but rather seeks to explain the behavior as a by product of rational choice.
There is a lot of explaining to do in this case. Why would any profit-maximizing company mistreat its customers in a very public way? What’s more peculiar, this was apparently not an overbooking situation in which passengers were denied boarding. Instead, passengers were already seated and the airline wanted to fly its own people rather than substitute other customers to whom they had sold the same seat twice. Why would a profit-maximizing company ask the police to forcibly remove a passenger who was already seated and why would the police comply? Why didn’t the airline pay the market price for the seat rather than suffer a public relations debacle?
Why indeed? Whenever we see irrational behavior we must suspect that perverse incentives are at play. And whenever perverse incentives are at play, we must further suspect the heavy hand of government behind it.
If you do suspect the heavy hand of government, you’d be right. The airline industry is a highly regulated industry with not a surprising amount of regulatory capture, meaning that many of the rules are designed to benefit the industry that is being regulated.
Let’s start with the obvious question. Why wouldn’t the airline just engage in a competitive auction until the price rose high enough to induce 4 people to give up their seats voluntarily and deplane? Answer: there is a Federal regulation that fixes the maximum price that must be paid to anyone denied boarding by an airline. The most recent maximum compensation regulations were put into place by the Obama transportation department in 2011. The regulation says that if a passenger is involuntarily denied boarding, the maximum the airline must pay is either 200% of the ticket price with a cap of $650 if the customer is delayed from arriving at his destination between 1 and 2 hours. If the delay is more than 2 hours, then the airline must pay 400% of the ticket price, with a cap of $1,300.
What incentives does this create? Since the regulation caps the downside for the airline, it will sub-optimally bump passengers by overselling too much. Also, the airline will tend to select passengers with the lowest ticket price to deny boarding. In practice, the airline will try to avoid paying the maximum price by getting people to voluntarily give up their seats for a lower price. But the airline’s downside is limited by the regulation because they can always select people to deny boarding to.
As I already mentioned, this regulation does not appear to have applied in this case, since the passenger was not denied boarding. Moreover, it was not an oversell situation, since the airline was not substituting passengers it was deplaning for other passengers. Why then did the airline think they could ask passengers to leave and why did these passengers comply?
Of the many drawbacks of the regulatory state, perhaps the most pernicious is the complexity. No one really knows all the regulations, what they mean, or whether or how you have to comply. 3 passengers on that flight just assumed they could be bumped even though they were already boarded. One passenger did not make that assumption. But the airline and the police did make that assumption. Is that so strange? How many people know exactly what the Obama transportation department did in 2011 and how it actually applies? Besides, there are other regulations that allow passengers to be deplaned if the crew is uncomfortable, with of course that subjective feeling being ill-defined. We have all seen videos of passengers being asked to leave the plane just because they complained aggressively, which customers do every day in other businesses. If a passenger refuses to be bumped after he is already seated and aggressively asserts his rights, can he be forcibly removed by the police because the crew is now uncomfortable? Unfortunately, it’s not clear in the regulatory state we live in, as we saw in that disturbing video.
We will not fix these sorts of problems until we recognize their systemic nature. We need to reduce and rationalize regulation. The myriad of regulations around overbooking could be replaced with a simple rule. When a customer buys a ticket, he has an absolute property right to his seat, whether he has already boarded or not. If the airline has overbooked, it is free to purchase the seats it needs from existing customers at the market clearing prices by auction. Under that simple regulation, airlines would be incentivized to optimally overbook. Moreover, the situation would be much more clear and no one, neither airline workers or the police, would think a passenger could ever be prevented from boarding or forcibly removed because the price the airline offered for his seat was not high enough.
Rick Stryker Nice post, but how would an airline optimally overbook if the reimbursement price is not known until the auction? The airline would need a pretty good estimate of that price, which seems unlikely given the management skills of folks in the airline industry. And if it is possible to know what the optimally overbooking reimbursement price is, then why not just make that the mandatory offer price? The problem with auctions is that they can carry high transaction costs.
Rick is right here. The property right should be absolute.
If you’re overbooking every flight — and by rights, an airline should — then the cost of requiring tickets will also quickly become known and subject to the law of large numbers.
Very rarely, reacquiring seats will become quite expensive, but what matters is the actuarial average, not the cost of any given ticket.
2slugs,
Businesses price under uncertainty all the time. Transactions cost are very low too.
Here’s how it would work. Let’s say an airline is overbooked by 4 seats. At the gate, they announce over the loud speaker the price they will pay for the first person to give up his seat. They keep raising the price until they get the first taker. Then they will repeat the process for the second passenger, etc.
Airlines that fly all day from many cities will get lots of data on how much they had to pay by city, destination, etc. They will then compare how much they had to pay relative to the extra revenues they received by overbooking and will learn over time how to optimally overbook.
While it was a nice post, there has been complaints by customers how the airline treats its customers by asserting the federal regulation. I remember hearing on the news one guy who was sitting in the first class section that he paid for and was told move back to the economy seat simply someone wanted the seat where he was.
The regulation you stated applies all airlines no exceptions however individual airlines could set a higher amount for customers to bump them but they chose not to. Everyone has a price to being bumped. I heard a travel writer got $11,000 for having her vacation flight bumped.
Secondly, the crews in question showed up after the boarding process was completed. There need to be a rule that employees should show up a specified time before the flight.
Because of the fiasco, United now requires employees to show one hour before the flight and they also empower the gate agent and the supervisor a higher amount to offer to people being bumped when there is overbooking.
some original link to the ecomomics and discussion, from 2 days ago
http://marginalrevolution.com/marginalrevolution/2017/04/today-good-day-remember-great-julian-simon.html
a game theory approach
http://marginalrevolution.com/marginalrevolution/2017/04/who-gets-bumped.html
“The regulation says that if a passenger is involuntarily denied boarding, the maximum the airline must pay is either 200% of the ticket price with a cap of $650 if the customer is delayed from arriving at his destination between 1 and 2 hours. If the delay is more than 2 hours, then the airline must pay 400% of the ticket price, with a cap of $1,300.”
is there anything preventing the airline from voluntarily paying more, for instance the actual market rate, in this situation. i know there is a regulation capping the requirement, but it does not make it illegal for the airline to pay the actual market rate anyhow. from a business perspective, it would have been better to voluntarily exceed the statutory maximum rather than treat it as an absolute law of the land to defend ones actions. united lost more than they gained in this exchange. regulations create artificial caps, that can be legally exceeded if one so chooses. not all behavior can be justified as rational. united did have an option for a better outcome, and did not choose it.
Baffling,
Yes, they can pay more than the regulated maximum price if they want to. And if the cost of the regulation to the consumer were widely understood, they might be compelled not to take the benefit from the regulation. But regulatory capture works because the costs are opaque to the public.
Usually, these costs are invisible. But consider this hypothetical example. Suppose the airline has two candidates to bump. One is a well-off retiree who paid $50 more for his ticket than the other candidate, who works for minimum wage. The retiree doesn’t care that much if he is delayed a couple of hours. In fact, he could go tomorrow with no problem. The other candidate is desperate to get to his destination, since his mother is dying in the hospital and is calling for him. Being late even an hour could be devastating. The regulation pays the same cost to both of them for the value of their time and doesn’t distinguish being late by 3 hours from being late by 30 hours. The airline selects the second candidate, because he has the lower cost ticket.
Who is aware of the cost to the second candidate? And what is the likelihood that anyone will ever know? Yes, it’s possible that a news outlet finds out about the man’s plight and films his mother’s pleas. And it’s possible that family members use their cell phones to film the man’s sobs as he arrives at the hospital 15 minutes too late. And its possible that the story gets on the nightly news, goes viral, and is a nightmare for the airline.
But do we want to rely on that? It’s much better to have simpler, sensible regulations that don’t create perverse incentives. Under my alternative regulation, the second candidate would always get to the hospital on time because he’d never sell his seat no matter how high the price. He wouldn’t have to rely on the news media or cell phones to expose the costs.
that is a nice hypothetical, and it does fit your argument. lets look at another hypothetical since we are in the fantasy world. what if all the people on the flight to cleveland are a group of mothers from cleveland. before departure, they hear on the news of a horrific accident involving a school bus carrying their children. the status of the children are unknown, but supposedly several are in life or death conditions. who gets bumped and who stays in your alternative regulation? in this case, nobody will take any offer from the airline. how does your competitive auction work?
Baffles,
This is isn’t fantasy. I was merely using my story to illustrate what should be obvious: people attach very different values to their time and they have good reasons to do so. The current regulation assumes that everyone’s time is equally valuable.
My story illustrates the very common situation in which people attach different values to their time. Your story illustrates the very uncommon situation in which there is no market clearing price. For that to happen, everyone on the plane, including customers sitting in business or first class, would have to have exactly the same problem and feel exactly the same about it. The probability of no market clearing price is essentially zero.
But what if it did happen, just for the sake of argument? No one would be dragged off the plane since you can’t seat two people in one seat. There are many options: the airline could just seat people in the order they checked in, denying boarding to those who checked in last. Or it could seat people based on their mileage status with the airline. Etc etc. Those people denied would then sue the airline for breach of contract.
That there is a theoretical possibility of no market clearing price is no justification for the current regulations.
“That there is a theoretical possibility of no market clearing price is no justification for the current regulations.”
if you want to impose a regulation, which is what you are suggesting, you need to address possible outcomes. otherwise you end up with another situation like we just experienced.
There was nothing in the airline regulations that prevented the United from doing the right thing. They could have had an auction. No regulation prevented that. In fact, they had a standing offer of $1600 from one passenger to give up their seat voluntarily. All they had to do was accept it. The problem was that the corporate rules prevented the supervisor from taking this offer. That is a failure of the corporation and not a failure of the regulations.
I agree with Steven Kopits (hey, it happens) that the CEO should resign. The CEO sets the rules and the corporate culture. A fish rots from the head.
And Megapixel Stryker blames Obama. Who do you think actually writes the regulations limiting mandatory compensation for overbooking? The very corporations and their lobbyists who Stryker seeks to defend. That’s like the person who kills their parents then begs mercy because they are an orphan.
Nothing in the regulations prevented United from doing the right thing and conducting an auction except for the failed corporate leadership. They could have accepted the $1600 offer if the corporation had empowered their employees to do so. Instead United chose to invoke the regulations they had a hand in writing to limit compensation. Nobody forced them to do so. It was a corporate decision and they should take responsibility for their decision.
Joseph,
I wasn’t blaming Obama. Obama didn’t create those regulations. I don’t know how far back they go but they’ve been around for some time. The Obama Administration mitigated the problem, since in 2011 they doubled the price that the airlines must pay for involuntarily denying boarding to a passenger.
I’m arguing the price should be infinite though.
The overbooking strategy is working well for the airline industry despite this particular incident. Just look at what people will do to gain a modicum of comfort and service… economy “comfort” anyone? My wife and I now book first/business class exclusively simply to not have to deal with the crap that airlines foist on all of the other passengers. We just take fewer flights.
Airlines already have a model that results in low prices for customers and high profits for airlines (in link I posted above):
“and Bumps can be a very lucrative “gaming” of the system for passengers, as evidenced by someone who made $10,000 dollars in Delta vouchers just this week after getting bumped off of multiple consecutive flights. If passengers have flexibility these bumps are a great way to secure credit towards future (free) travel.”
Here is United CEO Oscar Munoz today: “In the future, law enforcement will not be involved in removing a “booked, paid, seated passenger”, Mr Munoz said. “We can’t do that.”
Gee, it seems that it wasn’t government regulations that caused United to violently remove a passenger. It was simply bad company policy and he now says that they are going to change that policy.
It’s amazing that corporate apologists like Megapixel Stryker never want to take responsibility for their own decisions. They always have excuses for the most egregious behavior of companies. “Not my fault. The perverse incentives made me do it!”
It seems that conservatives have no internal moral compass. Monetary incentives are their only morality, as we saw in the financial blow up.
you get the same argument from peak trader with respect to the financial crisis. the financial and banking professionals are not to blame. the government made me do it! if only the government had not existed, the offending parties would have behaved properly. riiiiiight.
Baffling still believes it was a mass private sector conspiracy and government policies had nothing to do with it.
Sure, Citigroup wanted its stock to fall below $1 a share making way too many risky loans.
If it isn’t a mass private sector conspiracy, it has to be a vast right wing conspiracy.
no need for a massive private sector conspiracy. all that is needed are a bunch of selfish personalities with greedy tendencies. and poor performance incentives. but that would never occur, even at wells fargo!
As usual, you attack arguments I never made.
You are making the trivial point that people don’t have to respond to perverse incentives. Of course they don’t have to. But the fact is people do.
Jimmy Kimmel prepared a new ad for United Airlines:
https://www.youtube.com/watch?v=4muxxItbGvo
United seems to have kind of a niche market of people who don’t expect to get where they wanted to go and get beat up besides.